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CHICAGO (ChurchMilitant.com) - A commercial credit rating agency is warning lenders that the archdiocese of Chicago is at greater risk for bankruptcy.
Moody's Investors Service is downgrading the archdiocese's bond rating "to Ba1 from Baa1," indicating to creditors the archdiocese is in a weakened financial state. Mainstream media outlets report the score affects outstanding general obligation debts of approximately $130 million. They further note that sex abuse claims are at the heart of the downgraded score.
"The downgrade to Ba1 is largely driven by our [Moody's] view of escalating core social and business risks across the sector driven in large part by sexual abuse claims leading to an increasing trend of preemptive bankruptcy," according to Yahoo Finance.
Moody first divides its ratings into investment grade or speculative-grade borrowers. It then gives each borrower a short- and a long-term rating. A Baa1 rating is an "investment grade" rating while Ba1 is a "speculative grade" rating, meaning that it is riskier.
The Baa1 short-term rating is considered prime, with "high ability to repay short term debt." The rating's long-term outlook is "medium grade, with some speculative elements and moderate credit risk."
The downgrade to Ba1 puts the archdiocese in the "speculative grade." From a creditworthiness perspective, the archdiocese is "judged to have speculative elements" and is a "significant credit risk."
In reporting the downgrade, Moody includes the following rationale, which involves future sex abuse litigation:
The archdiocese is one of the subjects of an ongoing investigation by the Illinois attorney general that may contribute to growth in sexual abuse claims. While current projections of sexual misconduct claims, which arise from decades-old alleged incidents, appear to be manageable, their full impact and their implications for defensive filing introduce an element of unpredictability, limiting the rating.
In its financial assessment, Moody praises the archdiocese, saying, "The management team's strong transparency provides management credibility, a credit-supportive governance consideration."
Critics of the archdiocese, however, dispute the claim that it is "credible" or "transparent." Cardinal Blase Cupich's parish restructuring plan, which was motivated primarily by financial considerations, has been widely criticized for its heavy-handed approach. Some parishioners thought the plan, "Renew My Church," was rolled out in such a way that it pitted one parish against another. The plan was nicknamed "Ruin My Church."
Another example of the archdiocese's poor financial management is the $350 million campaign in 2013 to establish an educational trust fund. Catholics were told their contributions would be invested, and scholarships would be paid from the investment earnings.
Catholics responded generously and exceeded the goal by $77 million. But in 2019 the Chicago Tribune published an expert analysis of the archdiocese's finances. It claimed that six years after the endowment fund was formed, it had a shortfall of $105 million.
The archdiocese's ability to raise capital in the future will be hampered now by its credit score from commercial lenders and by its credibility gap with faithful Catholics.
Church Militant reached out to the archdiocese for comment about Moody's rating but as of press time had not received a response.